Summary:

• RBNZ leaves rates on hold, but equips traders with dovish phrases pointing to a rate cut moving forward
• NZD tumbles and seems to be en route to its very important demand area
• Chinese consumer price index slows down, inflation among producers gathers pace
• Oil prices move further up following an Israel-Iran clash overnight

The New Zealand dollar took a hit after the RBNZ left rates unchanged and equipped investors with a bunch of dovish stuff. The central bank, being steered by a new governor Adrian Orr, adjusted its inflation path slightly downwards seeing the annual CPI rate at 1.6% in 2019 instead of 1.8% predicted in February. Thus, price growth in the NZ economy is still unlikely to touch the price goal until 2021 dispelling any odds for monetary tightening in the foreseeable future. On top of that, it needs to be said that there will be no noticeable pressure from GDP growth as it is forecast to be running just narrowly above its potential over the upcoming quarters, and then moving below this estimated level. This combined with the fact that risks to global growth appear to be tilted to the downside at this stage (the sweet spot cannot stay forever) implies that the RBNZ could find little reasons behind a possible rate hike going forward.

The RBNZ slightly cuts its inflation forecasts leaving the OCR rate predictions untouched. Source: RBNZ

In fact, Adrian Orr said explicitly that a rate cut is decisively a valid option. In turn, the monetary statement contained a phrase suggesting “the direction of our next move is equally balanced, up or down, and only time and events will tell”. However, does the state of play there mean any woes to the economy? We do not think so, and the RBNZ did not miss an opportunity to admit that. It underscored employment is booming and an immigration inflow adds to the supply of labour. At the same time consumer and business (mainly due to emerging capacity constraints) outlays are still envisaged to support economic growth. The bank concluded that the current level of rates is appropriate to maximise sustainable employment and maintain low and stable inflation. Putting all of the above-mentioned together seems to offer us a dovish message being a huge drag on the kiwi. The NZ dollar is already down almost 1.1%, and it is the sole mover of note within the G10 basket.

The NZ dollar is taking a dive in the morning eyeing 0.6820 as its closest target to tick. The dovish RBNZ together with the simmering USD strength could make this level really attainable. Source: xStation5

Looking at the macroeconomic calendar just Chinese inflation deserves more attention. While CPI lost momentum in April moving down to 1.8% from 2.1% and missing the forecast at 1.9%, inflation among producer quickened even more than expected to 3.4% from 3.1% albeit matching economists’ anticipations. It has carried a little effect on the China’s assets, but it may matter for the global economy in the future once rising inflation does not subside. This is especially true amid a rising oil prices environment which the Chinese economy is the largest importer in the world. Thus, should oil price growth accelerate even more, it could reverberate in China and thereby all around the world as well. Meantime, US President Donald Trump threatened Iran yesterday that it needs to negotiate with the US or “something will happen”. During the Asian session oil prices continued marching north getting an additional boost from an Iran-Israel clash. The latter informed that Iran fires missiles at its soldiers in the Golan Heights and retaliated by striking Iranian targets in Syria after weeks of building tensions. Both oil grades are trading roughly 0.7% higher in early trading on Thursday extending their latest remarkable winning streak.

WTI oil prices are continuing their march to the upside after the successful test of a 50% retracement. The first target they could aim for might be localized in the vicinity of $77. Source: xStation5